I have a question about a federal unsubsidized stafford loan served by Sallie Mae. I took the loan out in Fall of 2008, it was the first of 4 such loans that I would end up with by the end of undergrad. I am now a graduate student and the loans are automatically in deferment until I graduate with my PhD in 2017(ish) In my first year of graduate school I've made enough money to gradually pay off one of the loans over the year, but since it is reporting a positive history on my credit, I wanted to pay down the principal balance to a negligible amount to avoid paying unnecessary interest, but keep the loan open so that it would continue to reflect favorably on my credit. I paid the balance down to $0.47, and it has been that way for a month. Today, Sallie Mae sent me an email saying that I had paid the loan in full and it was now closed.

My questions are...

Can they close the loan whenever they feel like without my consent?

Will this reflect negatively as closing a form of credit, or will my credit be unharmed since I still have 4 more similar loans that are reporting positively?

How much will Sallie Mae "forgive" for the sake of closing a loan? A dollar, $10, $100?

My credit record and my driving record are the two things I protect as if they were my children. If Sallie Mae has even mildly hindered a small part of my ability to generate impeccable credit, I'm going to be a little salty about it. Since the loan is a complete rip off anyway, I was hoping to at least get some small benefit from it, but even that seems to have been taken away from me.

Thank you for any insight you can offer, all replies are greatly appreciated!

Sincerely,

- Overly Concerned Professional Student

Sun Sep 15, 2013 10:17 pm

oldguySenior Member

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Well. before you get too salty educate yourself about the nature of borrowing money. Loans don't 'open' and 'close', they are either 'paid' or not, no consent involved. Yes, closing a cc, especially an old one, cuts your available credit, dings the denominator of your LTV. But that one loan won't do much, maybe 10 points - and it will 'time out' in a few months.

And why are you prepaying the principal on these loans, aren't they good sources of long term, low interest capital? If so keep them and put the money to work elsewhere. Highest and best use, always - that's how you build wealth.

Good luck with your phd - 2017 - what is your field?

quote: My credit record and my driving record are the two things I protect as if they were my children.

Very good, you are right to protect them with your life. Thru-out my engineering career I've carried various secret clearances for US space projects - the govt checks where you went to grade school, HS, college, military, all places of residence, employment, yada - when I say checked, an inspector actually traveled to my home town and contacted people.

Last week I was talking to a X-country trucker, age 75 (I'm 74, that's how age came up). He said that young drivers can't pass a drug test, can't provide a clean DMV record, can't pass a creedit check, ie old drivers are in demand. HR checks those records in your background check, so do insurance companies.

Sun Sep 15, 2013 11:13 pm

WinoSenior Member

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quote:Originally posted by oldguyAnd why are you prepaying the principal on these loans, aren't they good sources of long term, low interest capital? If so keep them and put the money to work elsewhere. Highest and best use, always - that's how you build wealth.

That's also how you go bankrupt. Don't borrow money to invest. If you do, you can go down in flames. If you invest your own money, the worst that can happen is that you lose principle.

You should pay off Sallie Mae and get a car loan or a credit card if you're so concerned with credit. Sallie Mae is not bankruptable, so you're going to pay that back, no matter how much it grows to become. The only worse debt to have is IRS debt, because they don't even need to sue you to get your assets, garnish your wages, or otherwise make you homeless and destitute.

You say Sallie Mae is a bad deal. Then why did you take out the loan?

Mon Sep 16, 2013 1:09 am

coasterSenior Advisor

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Re: Closing Sallie Mae Loan

quote:Originally posted by pgmitcheCan they close the loan whenever they feel like without my consent?

No. A loan is a binding legal contract between two parties. Neither party can unilaterally abrogate or alter the terms of the contract without the consent of the other party. The schedule of payments is one of the terms of the contract.

~Tim~

Mon Sep 16, 2013 4:40 am

pgmitcheNew Member

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Thank you for the responses, I don't think it will affect me much since I still have 4 other loans that are in deferment, I appreciate the input that each of you have provided.

quote:Originally posted by oldguyLoans don't 'open' and 'close'

'Closed' was just Sallie Mae's word, not mine.

quote:Originally posted by oldguyAnd why are you prepaying the principal on these loans, aren't they good sources of long term, low interest capital?

A subsidized loan is one I would leave outstanding until the repayment period. They accrue no interest while in deferment and only 3.4% during repayment. Unfortunately mine are unsubsidized and therefore have accrued 6.8% since the first day they were taken. After 4 years of school, with no payments made (as I had only enough income for my daily expenses), they have accrued thousands in interest. Since I do not have confidence in my ability to generate greater than 6.8% by investing the money, I feel it is more prudent for me to pay my debt as quickly as is responsibly possible on my modest graduate student income.

quote:Originally posted by WinoThat's also how you go bankrupt.

Word.

quote:Originally posted by WinoYou say Sallie Mae is a bad deal. Then why did you take out the loan?

According to statistics collected by Shahien Nasiripour of the Huffington post, in the 2013 fiscal year, federal student loans are projected to have been more profitable than any business on the planet at a $50.6B profit, Exxon is projected at $44.9B, Apple profited $41.7B in FY2012, their most profitable year. The profit of student loans is about equal to that of the four largest American banks combined. Nasiripour goes on to say "At $1.1 trillion, student debt eclipses all other forms of household debt, except for home mortgages." To make that kind of money by putting kids in crippling debt that will follow them for the rest of their lives, under the misleading promise that everyone can do well in college and everyone who goes to college does well financially, I find morally apprehensible. That's why it's a bad deal.

When I was 18 I didn't have any credit and couldn't do any better for a student loan, I reduced my costs as much as possible by commuting from home instead of living on campus, earning scholarships, working part time, and taking the maximum number of credit hours every semester, but I still could not pay upfront for all of my tuition out of my own shallow pockets. While the loan was a mediocre deal, college overall was still a good deal. I had enough academic merit to go to a pretty good private school at a state school price, while the state schools offered me little or no academic scholarship. Graduating with honors in a double major in 8 semesters made my debt worthwhile, as it helped me to get into a graduate program that is better than I ever expected I could get into. That's why I took out the loan.

quote:Originally posted by CoasterNeither party can unilaterally abrogate or alter the terms of the contract without the consent of the other party. The schedule of payments is one of the terms of the contract.

Thank you.

quote:Originally posted by oldguyVery good, you are right to protect them with your life.

Thanks.

quote:Originally posted by oldguywhat is your field?

Molecular Biology, I work on elucidating some of the structural characteristics of one of the proteins implicated in Alzheimer's Disease.[/quote]

Mon Sep 16, 2013 5:44 pm

clydewolfSenior Member

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Re: Closing Sallie Mae Loan

quote:Originally posted by coaster

quote:Originally posted by pgmitcheCan they close the loan whenever they feel like without my consent?

No. A loan is a binding legal contract between two parties. Neither party can unilaterally abrogate or alter the terms of the contract without the consent of the other party. The schedule of payments is one of the terms of the contract.

This loan was all paid except for $0.47.

I would venture that in that contract that carrying the $0.47 balance SM had the authority to close that contract. Keeping that contract open is more costly to SM vs closing the contract. SM is happy and the OP should be happy too with one less loan to keep tabs on.

Mon Sep 16, 2013 5:53 pm

littleroc02usModerator

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When I paid mine off they accepted anything under a dollar for a balance. I wouldn't worry about keeping the student loan around just for a credit score. If you want to build your credit score all you need is one cc and keep a small balance on it and use it each month and pay it off. On the credit report it will never show paid off, the credit burea's take a sample of your balance every once in a while to report to your history. If I were you I'd be happy to not have any money owed to Sallie Mae, it's better to get our of school debt free then to have a good credit score IMO.

Risk comes from not knowing what you're doing. (Warren Buffet)

Mon Sep 16, 2013 7:50 pm

oldguySenior Member

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quote: federal student loans are projected to have been more profitable than any business on the planet at a $50.6B profit, Exxon is projected at $44.9B, Apple profited $41.7B in FY2012,

But don't overlook the source of those statistics. It is common for Corporation Haters to present only the half of the data that makes their point.

Eg, Exxon put up $390B in capital - oil rigs, ships, refineries, trucks, yada - and they maintain a payroll for 77,000 workers around the world. They have to explore, drill, refine, distribute about $400B of product per year to earn $50B/yr. Their margin is 8.98%, better than a savings account - but hardly excessive earnings. But have you noticed - if Exxon were to make 12% some year, huffington's headline would be "Exxon Profits Up 26%"

But I agree with you about student loans - I would much prefer to see my tax-dollars go toward sub-market loan rates to students. When the real cost-of-money in Business is 4% or 5% (current) I think we (tax payers) should subsidize student loans down to about 2% or 2.5% - I see no excuse for hitting them with 6.8% in a <5% world.

Based on a 40-hr work-week, the US 'salary' is about $1.5B/hour. That $50B income from SLs represents about 1 week of the USA income - seems like we, as a society, should cover that.

Mon Sep 16, 2013 10:49 pm

coasterSenior Advisor

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Re: Closing Sallie Mae Loan

quote:Originally posted by clydewolf

This loan was all paid except for $0.47.

I would venture that in that contract that carrying the $0.47 balance SM had the authority to close that contract.

You're probably right. (In this case) It depends what they consider as "Paid in Full". If they sent out a letter saying the loan was paid off then the loan is paid off and the terms of the loan contract are fulfilled. If the loan is *Paid in Full* then the balance, for credit reporting purposes, is zero, not 47 cents.

In the OP's case it's much ado about nothing, really. My comment responded to the general, not the particular. This is just something I do from time to time for the benefit of the general readers and googlers, who in this case might key on the wording "whenever they feel like" and come away with a mistaken idea about Sallie Mae lending practices. I guess I should be more clear when I take poster's comments out of context and quote them for the purpose of making a general statement rather than for the purpose of addressing the particulars. It takes time to do that, but in this case would have saved a whole lot more time it took to explain it.

~Tim~

Tue Sep 17, 2013 4:52 am

pgmitcheNew Member

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quote:Originally posted by oldguy

But don't overlook the source of those statistics.

I apologize, I didn't mean to echo Huffington's loathing of big business, I have no problems with Exxon's profits or with Apple's. I respect both of those companies and I believe they do their best to conduct ethical business and remain competitive. I was only using the two of them (and the 4 largest banks) as a reference point for what we're piling onto young naive students, more than half of whom won't even graduate with a degree.

While Exxon invests massively around the world to maintain their profits, and Apple is constantly innovating in an ongoing race to stay in step with their competition, federal student loans do nothing but borrow the money low and lend it high. Hopefully that money is reinvested in the education system at least. Who knows what the real numbers are anyway, if you asked Fox Business, they'd say student loans are a costly big government entitlement and that students are lazy parasites living off of the tax dollars of hardworking real Americans. In many cases, that probably isn't far off either.

quote:Originally posted by coasterIn the OP's case it's much ado about nothing, really.

It's just a curious thread in a forum, I'd say it's little ado about little, really.

Thu Sep 19, 2013 9:47 pm

oldguySenior Member

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quote: federal student loans do nothing but borrow the money low and lend it high. Hopefully that money is reinvested in the education system at least

We can hope - but hard to know where govt loan 'profit' goes.

A big gap in the edu system seems to be at the HS counseler level - 17 & 18 yr old kids were told to 'get a degree', any degree, that's the key to success. So the kids look for something of interest that sounds cool or easy - pysch, art, russian lit, social work, communications, interdisciplinary studies, yada - and avoid STEMs, that math & physics must be HARD, lol. So that's one reason we have grads w/ $100k loans and soft BA's. We put a huge demand on colleges (therefore higher tuition prices).

The private ivy league schools seem to have money figured out. Yale & Harvard have near-200 yeasr old endowments with several billion dollars. And fund managers (such as David Swenson) who regualrly get 16% and 18% returns on the endowments - enought to operate the entire school plus fund research plus offer scholarships.

Thu Sep 19, 2013 11:37 pm

pgmitcheNew Member

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quote:Originally posted by oldguy

A big gap in the edu system seems to be at the HS counselor level

You're reading my mind. I nearly went on a lengthy rant about my HS guidance office in my previous post. They encouraged every kid to do whatever sounded best to them without any deliberation on the possible consequences... "C- average, don't like Biology, but interested in making a lot of money as a surgeon? Go pre-med, you'll get everything turned around in college... two semesters of remedial classes isn't as bad as it sounds."

Their entire philosophy was "Never let cost hold you back, there are many ways to make up the tuition difference, what's most important is that you don't ever regret passing up your 'dream school' and the full college experience, just because it was out of your price range."

This all to a bunch of lower-middle-class rural Midwestern kids who weren't stupid, but simply didn't understand what it was like to be in debt, and figured, 'since everyone else is doing it, it can't be too devastating.'

I think the motivation for the counselors was to boost that statistic that says "in our district, 90% of graduates go on to further their education."

I almost wanted to become a guidance counselor, just out of spite for mine being so useless.

The topic of this thread has officially derailed, but still loosely tied to 'Money Talk'. haha

quote:Originally posted by pgmitcheThe topic of this thread has officially derailed, but still loosely tied to 'Money Talk'. haha

I'll buy that, too.

Actually, I'm probably the worst one here for derailing topics.

But as long as a topic stays interesting, cordial, non-repetitive, representing multiple individuals' original thoughts, and, oh, ya, ... somewhat in the ballpark of money topics .... then the topic can go anywhere it wants (like a "real" discussion would progress).